TaxTMI 
TaxTMI 
2025 (4) TMI 1352
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....section 201(1) / 201(1A) of the Act. 2. All the appeals have same nature of facts and have a common issue. All the appeals are taken together, heard together and disposed of together. So, ITA No.5210/Mum/2024 is taken as lead case. ITA 5210/Mum/2024 3. The revenue has taken the following grounds:- "1) "Whether on the facts and in the circumstances of the case and law, the Ld. Addl./Jt. CIT(A) has erred in holding that the transaction between the assessee company and channel partners was on principal to principal basis and therefore transaction would not come under ambit of 194H, without appreciating the fact that Ownership of the goods lies with the assessee company (brand owner) till the time of sale of the goods by channel partner to end customer since the business risk of goods supplied to channel partners lies with assessee company till the time goods are sold to the end customer." 2) "Whether on the facts and circumstances of the case and in law, the Ld. Addl./Jt. CIT(A) has erred in holding that the transaction between the assessee company and channel partners was on principal to principal basis and therefore transaction would not come under ambit o....
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....g the fact that there is a clear element of acquiring/gaining possession by the taxpayer over a specifically demarcated area in the premises; possession of that specific area is with deductor and it enjoys unrestricted and uninhibited possession as well as right to use of the area; the employees of the deductor use the space exclusively for their own business; and Interior decoration as well as presentation, layout and configuration etc. of the demarcated area is in the exclusive control of the deductor, therefore, present arrangement falls squarely within the definition of 'RENT' which has been accorded a wider meaning than the connotation of 'rent' as commonly understood." 7) "Whether on the facts and circumstances of the case and law, the Ld. Addl./Jt. CIT(A) has erred in holding that the case law i.e. Bharti Cellular Ltd. vs ACIT [(20240 462 ITR 247 (SC)] cited by Ld. Addl/JCIT(A)is squarely applicable in this case without appreciating the fact that the instant case is different from the cited case law as there are certain restrictions in with respect to freedom of fixing retail sale price of the branded goods, in other words, there is no severance of c....
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....2025. The relevant paragraphs are reproduced below:- "The assessee company is involved in manufacturing and retailing of branded apparel, selling its products through multiple channels. A survey action u/s. 133A of the Income Tax Act 1961 (in short "the Act") was conducted by department on 28.08.2019 revealed some discrepancies related to tax deduction at source. The company primarily sells goods through channel partners on a "Sale or Return (in short "SOR") basis"; meaning unsold goods are returned to the company. The modus operandi followed by the assessee company found during the course of survey proceedings are as follows: 1. Franchise-Owned-Franchise-Operated (FOFO) Stores: The franchise owns or leases the store and sells branded goods provided by the assessee-company on an SOR basis. Unsold items are returned by the franchise to the assessee-company. It is the absolute right of the assessee-company to decide sale prices and discounts to the franchises. 2. Large-Format Stores (LFS): The assessee-company supplies products to stores like Pantaloons, Central and Lifestyle on an SOR basis. The assessee-company also provides brand promoters who a....
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....majority of sale by assessee-company is made through the above mentioned frameworks. All the participants are supplied goods on SOR basis. In lieu of effecting sale of branded goods manufactured by the assessee-company, the channel partners are provided margins by the assessee-company, e.g. in case of margin of 20%, goods, whose retail sale price is Rs 100/- plus GST, are invoiced at Rs 80/- plus GST by the assessee-company. Once goods are sold to end customers, the channel partner collects money from end customer, retains its margin and gives the balance amount to the assessee-company. b. On the basis of facts gathered during survey proceedings, it was found that supply of goods to franchisee/E-commerce/LFS player under SOR basis is not sale transaction. This supply is also not on Principal to Principal basis. Though the company claims that supply to franchisee/E-commerce/LFS player is a sale transaction as invoice is raised and GST is paid to the government, in substance the supply is not a sale transaction. In reality, the franchisees/E-commerce/LFS players are being provided margin for acting like an agent for providing various services which culminates on the sale of ....
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....Principal to Agent" relationship between assessee-company and its various channel partners. This is established by the following observations: i) Assessee- Company receives the payment from the channel partners only when goods are sold to end customer by the channel partners. The channel partner is not needed to deploy capital for receipt of goods. ii) If goods are not sold, channel partners return the unsold goods to the assessee company at the price at which goods were received by them. iii) Ownership of the goods lies with the assessee-company under (Brand Owner) till the time of sale of the goods by channel partner to end customer since the business risks of goods supplied to channel partners lies with assessee-company till the time goods are sold to the end customer. iv) Risks of obsolescence of the goods lies with the assessee (Brand Owner) v) At the end of every month, assessee-company determines the quantum of unsold goods lying at the premises of channel partners and makes sale reversal entries in its books of accounts irrespective of the fact whether the unsold goods are physically returned to it or not. It proves overall contr....
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....Aavaran Apparels (The franchisee). The relevant clauses are reproduced below for ready references which throw light in establishing relationship between assessee-company and its channel partner. 3.1. The franchisee agrees to get necessary fit-outs carried out in the franchisee store through any person or agency as may be designated by the HOADL. 3.2 The Franchisee store must be constructed and equipped in all respects in accordance the standards and specifications furnished and/or approved by the HOADL. 4.8 The franchisee shall sell the Franchised items only at the stated maximum retail price on the Franchised items price tag and shall not offer any discounts, freebies promotions without prior written consent of the HOADL. 4.10 Staff to be appointed as a franchise store must be approved by the HOADL. 5.8 HOADL will provide Performance discounts @3% linked to the Franchise Store Performance. The HOADL will also conduct audits every quarter and on the basis of that the performance incentive will be given. 6.2 The franchise acknowledges that from time to time HOADL may deem it necessary for its franchisees to conduct sales, give aw....
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....ST at 12%, channel partner will deposit GST to government account after claiming input credit of GST already deposited by the assessee-company into govt. Account, Thus, govt. will get total GST of Rs 12/- and this amount of Rs 12/- is borne by end customer only. However, if margins provided to channel partners are treated as commission income, payment of GST to Govt. Account will be in the following manner: Government will get total GST of Rs 12/- as end sale price of goods is Rs 100/-. Further, as channel partner is getting commission (in lieu of providing some services) from assessee company, the commission receipt will also be subjected to GST @18%. Hence total GST receipt in the hands of the govt's account will be higher when compared to total receipt that is being received under modus operandi being adopted by the assessee-company presently. It has been a settled position that retention of commission by an agent amounts to constructive payment on which TDS is required to be deducted by the principal. In this regard, reference is made to CBDT Circular No. 619dated 04.12.1991 (copy enclosed) which, inter-alia, stipulated the following: "A ....
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....nhibited possession as well as right to use of the area; c) The employees of the deductor use the space exclusively for their own business; and d) Interior decoration as well as presentation, layout and configuration etc. of the demarcated area is in the exclusive control of the deductor. 2. The present arrangement falls squarely within the definition of "RENT" which has been accorded a wider meaning than the connotation of 'rent' as commonly understood. For the purpose of present discussion, the relevant definition of 'RENT' as per Explanation to Section 194I of the Income-tax Act, 1961 is reproduced below :- "RENT Section 194-I Any persons, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, which is earlier deduct income-tax thereon at the rate of........ Explanation For the purposes of this section, - [(i) rent mean any payment, by whatever name called, under ....
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....rms of the agreement. At the time of sale of goods by the Respondent-assessee to the franchisee / LFS, an invoice is raised on an amount mutually decided which is less than the Maximum Retail Price (MRP) and Goods and Services Tax (GST) is charged by the Respondent-assessee on the said sales. The franchisee / LFS would in turn sell the goods to the end customer in its own name. The franchisee / LFS would pay the sale consideration to the Respondent-assessee and would in turn collect the sale price from the customer. In the books of accounts of the Respondent-assessee, goods are treated as sold when invoices for the goods are raised, and goods are transferred to the franchisee/LFS. When goods are returned by the franchisee / LFS, a separate entry is passed for sales return. 3. Income of the Respondent-assessee is offered to tax on the basis of the said sales, as recorded in the books of accounts of the Respondent-assessee. In so far as the income tax assessment is concerned, the income has been accepted by the Assessing Officer by treating the said transaction with franchisee / LFS as sales and income therefrom, which has been offered to tax by the Respondent-assessee, has ....
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....incipal, i.e. the assessee. i. Without prejudice, the TDS Officer also held that in so far as the sales through LFS is concerned, discount would amount to rent under section 1941 of the Act as the employees of the assessee have possession over a demarcated area in the premises of LFS and, therefore, the discount by LFS would be in the nature of rent. 6. The Commissioner of Income-tax (Appeals), vide order dated 8th August, 2024, allowed the appeal filed by the Respondent-assessee, by, inter alia, holding as under: (i) The relationship between the Respondent-assessee and its channel partner is on principal to principal. In paragraph 7.3.1.9, the Commissioner of Income-tax (Appeals) has referred to the relevant clauses of the agreement with various channel partners to come to the aforesaid conclusion. The Commissioner of Income-tax (Appeals) concluded that once the goods are delivered to the franchisee/LFS, the goods were the responsibility of the franchisee/LFS and, therefore, the agreement between the Respondent-assessee and the franchisee/LFS was that of principal-to-principal relationship. (ii) The Commissioner of Income-tax (Appeals) further h....
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....r. The Ld. AR argued that in the present case, the assessee raises invoices for sale of goods to franchisees/LFS and receives consideration against such sales. Since the assessee does not pay any amount to the franchisees/LFS, the provisions of Section 194H do not get attracted. It was further submitted that TDS under Section 194H is required only if either (i) income is credited to the account of the payee, or (ii) payment is made to the payee. In the present case, neither has any income been credited to the account of franchisees/LFS-as they are reflected as debtors in the books of the assessee-nor any payments made to them. On the contrary, the assessee only receives payments from the franchisees/LFS. Hence, the provisions of Section 194H are wholly inapplicable. 9. In support of this contention, respectfully reliance is placed upon the decisions in: a. CIT v. Piramal Health Care Ltd. [55 taxmann.com 534 (Bom)], held where assessee had received sale price from stockist but had not paid/credited any amount to stockist, question of invoking section 194J against assessee did not arise b. CIT v. Super Religare Laboratories Ltd. [133 taxmann.com 313 (Bom)], held Where ass....
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....he franchisees/LFS is a sale on a principal-to-principal basis, supported by the following contentions: (i) Upon transfer of goods to the franchisee/LFS, the assessee raises an invoice and charges GST. GST is leviable only on a sale of goods, not on the transfer of goods to an agent. Thus, issuance of invoice and payment of GST indicates a sale transaction. (ii) Upon such sale, ownership in goods stands transferred from the assessee to the franchisee/LFS. Further, the franchisee/LFS effects subsequent sale to customers in its own name, not in the name of the assessee. When goods are sold by an agent, invoices are typically issued in the name of the principal, which is not the case here. Moreover, the GST authorities have not raised any objections to this arrangement, thereby accepting the transaction as a sale. Respectfully reliance is placed on CIT v. Khadim Shoes Pvt. Ltd. [61 taxmann.com 413 (Cal)] the relevant paragraph is reproduced as below:- "5. The case of the assessee has always been that the goods were purchased on the basis of samples which has not been disputed or could not be disputed by the revenue. The reasoning advanced by the CIT for the ....
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....cy. (vi) The Ld. DR respectfully relied on the decision in Singapore Airlines Ltd. v. CIT [144 taxmann.com 221 (SC)] which is distinguishable. In that case, travel agents received standard and supplemental commission from the airlines and operated as agents under an admitted principal-agent relationship. The Hon'ble Supreme Court held that TDS under Section 194H was applicable to both standard and supplemental commission in light of specific contractual clauses (e.g., Clause 7.2 of the Passenger Sales Agency Agreement), wherein agents held all collected monies in trust for the airline. No such clause exists in the assessee's agreements with the franchisees/LFS. Hence, the facts in Singapore Airlines are materially different and inapplicable to the present case. (vii) It is further submitted that in the case of the assessee, no amount received by the franchisees/LFS is held in trust or on behalf of the assessee. There is no clause in the agreement similar to Clause 7.2 of the Passenger Sales Agency Agreement considered in Singapore Airlines Ltd. (supra). Accordingly, the said decision does not apply to the present facts. 12. During the course of hearing, the Ld.....
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....ation of Section 194-I of the Act is without merit. 14. In support of the above submissions, reliance has been placed by the assessee on the decision of the Hon'ble Bombay High Court in CIT v. Maharashtra State Electricity Distribution Co. Ltd. [2015] 375 ITR 23 (Bom), wherein it was held that mere use of transmission lines by electricity companies does not amount to payment of rent under Section 194-I. The Hon'ble Court held at para 57 that for a payment to qualify as rent, possession is a necessary element. Respectfully reliance was also placed on the decision of the ITAT, Mumbai Bench, in Chhattisgarh State Electricity Board v. ITO [2012] 18 taxmann.com 150 (Mum), where a similar view was taken. Accordingly, it is submitted that discounts on sales cannot be equated to rent for the purpose of invoking Section 194-I of the Act. 15. On perusal of the agreements and invoices placed on record (Paper Book - Index II, pages 1 to 66), it is evident that the assessee raised invoices in the name of the LFS/franchisees, and the LFS/franchisees in turn raised invoices to the end customers. The brand name was merely used to sustain the market position. The transactions are clearly o....
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....ponsibility of F 5.1 Billing prices- trade discount- on invoice prices(net of Excise duty & sales Tax/VAT) 5.2 Invoices at the time of dispatched Payment by F to A- within 7days of receipts of items Customers failed to pay amount will be recovered from F by A- debit note 5.3 Interest on delay payment by F- 24% 5.6 E will bear all the taxes, duties & other govt. charges, VAT, service tax etc. 6.1 Promote sale- A will promote 6.3 Agrees to purchase and sale items provided by A 7.9 marketing on social network- approval from A 10.4 Risk, loss or damage of items passes to F upon delivery of items at the store but A will have right of lien over items supplied till the time full value of invoice is realized from F House of Anita Dongre PVT Ltd. ITA no.5210/M/24 1. Agreement dt. 11.01.2017 between ABFARL (former Pantaloons Fashion & Retail Ltd) .- Company (C) House of Anita Dongre (former AND designs India Ltd)- Vendor-Assessee (A) Clause Gist 4(a) Assessee raised invoice on C. A fix the MRP & send price list on MRP 4(c) A supply the product to C on discounted price on MRP 4 (d) (i) C remit purchase price to A by 15th of succeeding month. ....